Labour unrest has thrown the spotlight on the growing problems faced by SA's platinum miners. Charlotte Mathews assesses the state of the industry.
Shocking scenes of police shooting at protesting miners, and children picking through rubbish in shantytowns, brought home to many South Africans the realities of social problems spawned by the platinum mines around Rustenburg.
In the past couple of years platinum has overtaken gold as SA's biggest mineral export. Government has been drawing up developmental plans based on the comfortable knowledge that this country has 80% of the world's platinum resources.
But if the operating issues faced by the platinum mining companies aren't addressed, platinum's future could go the same way as gold's.
In 2001 SA produced 393,5t of gold, one-seventh of the world's output, and the industry employed 176611 people. As mines got deeper and costs climbed, gold production halved to 191,4t by 2010, and employment dropped to 133898, according to Chamber of Mines figures. Now China produces more gold than SA.
In the same 10-year period, platinum's trends were the opposite. Employee numbers rose to around 180000 from about 95000 and total platinum group metal (PGM) production rose 25% to 287,3t.
In the past two years the trend has faltered. Like gold mines, PGM mines are getting deeper and costlier to mine. At the same time, PGM prices have dropped. Hikes in the cost of electricity, diesel and steel were already being felt before the department of mineral resources (DMR) stepped up section 54 safety stoppages. Last year was also the start of what has turned out to be a wave of crippling, violent strikes in the mines around Rustenburg, accompanied by inter-union rivalry.
The first was the illegal strike by 9000 workers at Lonmin's Karee section near Rustenburg last May which, together with safety stoppages, cut 43000oz of platinum production in the group's past financial year.
In February, Impala Platinum's Rustenburg operations were hit by a six-week strike by 17000 workers in which three people died. The company lost 120000oz of platinum output and R2,8bn in revenue.
Unrest at Lonmin's Marikana operations, also near Rustenburg, has already lasted three weeks and claimed 44 lives. Though it started with a strike by 3000 workers, almost the whole workforce of 28000 people has since stayed away, in sympathy or intimidated. Lonmin is losing 2500oz of output a day until full operations resume.
Lonmin acting CEO Simon Scott says Lonmin's strikes at Karee last year and at Marikana this year had different causes. The first was a dispute over the National Union of Mineworkers' branch leadership; the second a strike by rock drill operators. What has happened at Marikana began as an industrial relations issue and turned into something else, which is regrettable, he says.
But it seems obvious that big foreign manufacturers dependent on platinum or palladium for their products will have to take a long view about the disruptions to production in SA and make other plans to ensure security of supply.
And they do have other options.
Though SA is the biggest producer of platinum, Russia and North America have more palladium, which has been substituted for platinum in some applications because it costs less per ounce. Platinum is used in autocatalysts to remove harmful emissions from diesel-driven cars and heavy-duty vehicles. The biggest market for diesel-driven cars is Europe. Palladium is used mainly in autocatalysts in petrol-driven cars.
SA certainly has a unique position in PGM resources, but it is not unassailable. Zimbabwe, despite its political problems, has smaller but still attractive resources and a highly skilled labour force which makes Zimplats and Mimosa, jointly owned by Implats and Aquarius Platinum, consistent profit-earners.
There's also a growing source of platinum and palladium from autocatalyst and jewellery recycling.
Implats spokesman Bob Gilmour says autocatalyst recycling contributes about 15% of both platinum and palladium supply. Only about 55% of the autocatalysts available for recycling actually are recycled. "So even if all were recovered, this source of metal would not satisfy even half of auto demand. In a nutshell, the world needs SA's PGMs," he says.
But in the past year, increasing supply from recycling has combined with rising mine production to flood the market at a time when demand has weakened.
"A lot of the problems can be traced to the early 2000s, when there was overinvestment, as platinum demand, relative to palladium, was increasing," Stanlib analyst Kobus Nell says. "Projections about future demand proved, in retrospect, to be overoptimistic since autocatalyst demand has been moving sideways since the early 2000s.
"To be fair, the problems that arose in Europe could not have been foreseen. But I believe there is now too much platinum production capacity in SA, especially given the complexities of the problems facing the biggest customer, Europe."
At around US$1500/oz, the price of platinum is 20% lower than a year ago and that of palladium has dropped 25% to $630/oz. These prices are not enough to cover the costs of production at many platinum mines.
"Mine costs have escalated dramatically," Implats CEO Terence Goodlace says. "For example, between 2007 and 2012 power costs rose 218% from 17c to 54c/kWh. We pay about R1,6bn/year for power across the group. Diesel has risen by about 15,7%/year over the past five years and steel by 15,3%. The average increase in salaries was about 12%, which is five percentage points above producer price inflation. We are also going to have to spend more on development and safety equipment, so margins will remain under pressure."
The biggest dilemma the industry has been facing is how to cut back production to adapt to reduced demand without losing jobs or production permanently. After the closure of some operations by Aquarius Platinum and Eastern Platinum earlier this year, government and industry established a task team to find solutions to the sector's problems.
Mineral resources minister Susan Shabangu says assistance to the industry on taxes and costs has been suggested within the task team, but it doesn't just involve the department of mineral resources, it also involves national treasury.
"I am positive there will be ways to stabilise the industry, but if government comes in to help, we expect the companies to contribute to the betterment of their workers. We also don't want to see the platinum industry retrenching people. We are not going to rescue the industry just to make profits."
Nell says simply cutting production isn't going to get the price back to $1800/oz. Though it is possible to forecast an increase in demand in future from the Chinese heavy-duty vehicle sector and the implementation of more stringent standards, dubbed Euro 6, for European vehicles, this is some way into the future. Meanwhile the industry is suffering from overcapacity.
"One of the problems with creating capacity is that a footprint is established that needs to be supported - mines have to be kept on care and maintenance, for example. And AngloPlat employs about 20000 people around Rustenburg, each of whom supports at least another five people, as well as service industries," Nell says.
According to a University of Pretoria research paper, "Gated Rustenburg" by Prof Andries Bezuidenhout and Prof Sakhela Buhlungu, written before Marikana, about 450000 people lived around the Rustenburg area in 2009, of whom 42% lived in shacks, against a national average of 15%. The FM
estimates only about 100000 would be employed by the platinum mines. Between 1995 and 2009, the authors say, the number of jobs in manufacturing declined from 12000 to 7000. "This is a very risky situation for a mining town," they wrote.
Shabangu says the living conditions of workers around Marikana are "appalling. So anyone who wants to exploit the situation will find sympathy."
She says the crux of the problem that manifested around Marikana is that the platinum sector hasn't moved with the times.
"Not long ago, when we were addressing issues of safety through section 54 stoppages, the platinum sector was the only one that claimed it was being penalised. No other sector was aggrieved," she says.
"It shows this is a sector that wanted to continue in the old ways and sees itself as regulating itself, not aware of the needs of the country and workers and local communities."
Yet all the mining companies have spent millions on housing. Implats, for example, has built 1555 houses for its employees to buy in Rustenburg and is assisting them with loans and raising finance, Goodlace says. Another 3000 houses are in the planning stage. Altogether, there are about 10000 units for employees and many others have opted to take the living-out allowance.
Lonmin says it has invested R250m so far on upgrading mining accommodation and converting old-style hostels into new-style single and family units. So far 1728 properties have been completed, and by 2014 it expects to have converted 2790 units: 824 for families and 1966 for single workers.
"The provision of mass affordable housing, however, will remain a major challenge, but one we are committed to meeting," it says.
But Shabangu is not impressed. "There is minimal change. Implats and Lonmin employ thousands of people and we measure in terms of those numbers," she says. "They have to meet the amended mining charter conditions by 2014."
Those conditions are to house their workforce in family units, one room per person, or facilitate home ownership options for all employees.
"This is an industry with many migrant workers and the mining houses need to ensure that miners can stay with their families," Shabangu says. "Linked to that is the need to integrate workers into surrounding communities. Some of these workers have two families, one in the labour-sending area and one at the mine. They've got no commitment to the area and are battling to make ends meet. If they had families in the area, they would not be peripheral mineworkers occupying certain areas."
Shabangu was also displeased by the lack of skills development, particularly the continued use of the old multilingual mining language, Fanagalo, at Marikana. That needs to be stopped, she says. Mineworkers should be taught a real language, not one that equips them to work in mines only and nowhere else.
"The platinum sector is growing because of the potential we have in SA and this cannot be reflected only in profits and production - it also has to change the lives of workers and their families," she says.
Eunomix MD Claude Baissac says several problems were highlighted at Marikana, and not just around sustainability and communities.
The most obvious issue is union-on-union rivalry, between the National Union of Mineworkers (NUM) and the Association of Mineworkers & Construction Union (Amcu), which has been making inroads on NUM membership in the platinum sector. The situation is compounded by the stresses between permanently employed and contractor workers in the industry, which is not unique to platinum.
Other issues are government's failure to deliver at local level, also illustrated in an increase in service delivery protests across the country. Another dimension is how government and the police reacted to the violence, Baissac says.
Royal Bafokeng Platinum CEO Steve Phiri says an issue of concern is that workers will get out of hand when there is no proper union leadership. Mineworkers are members of communities, where there is a lot of unemployed youth who show solidarity with the workers.
"Then other issues, unrelated to the mineworkers, come up and the numbers swell. It's a national issue, it shouldn't be just the mines that are expected to employ the youth. SA needs to recognise we have an explosive situation."
As far as the labour issues are concerned, Baissac says collective bargaining - which means establishing an industry-wide wage standard by agreement with the unions, rather than negotiating on a mine-by-mine basis - could be the solution for the platinum sector, depending how it is implemented. He's concerned that if it is done through government intervention, it will be captured by the politics within the ANC's ruling alliance (of the ANC, the SACP and Cosatu).
Scott says it is worth exploring collective bargaining to see if it could provide a solution to the problems that emerged at Marikana and Implats Rustenburg.
Shabangu is in favour of collective bargaining as she believes it would stabilise labour relations and provide a form of engagement where common ground could be found. "In this process, no one party can achieve 100% of what it wants. It's all about give and take," she says.
Yet Implats group executive: people Johan Theron says collective bargaining doesn't present a simple solution.
"It might be if we all sat around a table we could discuss issues together and find sustainable solutions, but that's not why the crisis has happened. The problem with centralised bargaining is trying to find a way to accommodate everyone. You can't negotiate with one player and exclude others. Often centralised bargaining is used to keep smaller players out of the room."
Government could claim that Marikana's problem arose because industry failed to address the labour issues but it could also be argued that government failed to see this problem coming, Baissac says.
Asked why government failed to anticipate the problems that exploded around Marikana, Shabangu says the DMR deals with matters around regulating the industry, not labour.
"Yes, we regulate issues like health and safety and living conditions, but labour relations is regulated elsewhere. I agree these things complement each other and this is an area where there is a gap. But we need to manage the process without apportioning blame in particular areas."
Asked why Amcu was excluded from initial roundtable discussions, she says: "We've been criticised for it but, to be honest, we've been involved with various stakeholders in this sector for a long time and no-one has ever raised Amcu as a stakeholder before. As government, we will never take a conscious decision to exclude any particular stakeholder. But the first time the DMR received correspondence from Amcu was on August 22.
"Now we know, we have asked the minister of labour to start engaging with Amcu. We have also asked the Chamber of Mines to assist in negotiating between NUM and Amcu."
One of the reasons that the platinum industry has not previously adopted collective bargaining, while gold miners did, lies in the nature of the metal itself. Platinum companies vie to sell their product to different industrial customers, whereas gold is largely bought by anonymous investors on global exchanges.
This has created a competitive mind-set among platinum miners, who even use different, closely guarded technologies in their refining processes.
"I agree, the issue of platinum companies competing is a problem," Shabangu says. "We are pulling them together because of this crisis to create a common approach.
"Benchmarking as a sector is not going to eliminate competition. When gold was in crisis, the industry came together and said we need each other. Everyone needs to work together, instead of fighting, including government and labour."
Scott says the platinum companies already discuss certain common concerns together but cannot discuss marketing or supply issues among themselves. He doubts whether the competition among the companies is in any way destructive.
But other CEOs urge a change in attitudes.
"It is important for us to have stability in this country and this industry," Phiri says. "The industry has to come together to find solutions to save lives and help investor confidence."
Implats, which was previously an associate member of the Chamber of Mines, has recently become a full member.
"I felt we needed more stakeholder engagement and could achieve that through the chamber," Goodlace says. "It wasn't about collective bargaining. The chamber is very different now from a few years ago, and I believe that with the changes at CEO level we have seen, some of the egos may go and we can talk together."
There's nothing like a crisis for provoking some soul-searching and, as long as PGM prices remain depressed, platinum miners will be forced to make changes. But if there were a sudden spike in prices, these structural problems could be pushed under the carpet again.
Scott says SA's platinum is a national asset and when the markets turn, the mining companies have to be able to respond. Certain issues need to be addressed, one of which is labour relations. But he believes the platinum companies are operating within the law on labour relations and doing their best to meet the socioeconomic responsibilities required by the amended mining charter.
Implats group executive: marketing Derek Engelbrecht says the days of SA as a 5moz/year producer of platinum are long gone. He believes cost, labour and safety pressures will cap production at 4,2moz-4,5moz/year.
"If the price goes back to a level that entices investment, the industry will invest," he says. Asked if that incentive price was $1900/oz, he says his long-term forecast is higher than that.
"I believe that if demand grows more slowly than 3% compounded annually, pressure on the industry will continue," Nell says. "Above that rate, the higher-cost companies can survive. The problem is the uncertainty. There's no sign of a solution to Europe's problems."
Shabangu is convinced SA's platinum sector will flourish for many years, "which is why we want to see it changing the lives of workers and neighbouring communities. We don't want a successful industry growing in the backyards of shacks. Marikana is a call for the sector to change and it has to be now."
She also hastens to reassure investors. "We want to continue to grow investment in SA but we are mindful that people won't invest here if they think their investment will be lost."